UGBA103-samplemidterm1answers

UGBA103-samplemidterm1answers - your name: your section -...

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Page 1 of 5 1. Short answer questions (straightforward, no tricks, and almost no calculation is needed) A. (true/false) In the U.S. today, $1 paid today is equal to $1 paid in two years: A) false B. What is the present value of a payment of $2,490 received in year 7 if the B) $1,244.92 correct, risk-adjusted discount rate is 10.41% per year ? C. (true/false) Both stocks and bonds can be valued by discounting expected C) true future cashflows: D. (true/false) In the U.S. today, discount factors are sometimes greater than 1. D) false E. If you invest $100 at an APR of 11% (with semi-annual compounding), how much will you have in 5 years ? E) $170.81 F. (true/false) A growing perpetuity has a greater present value than a regular perpetuity if i) the discount rate and growth rate are positive; F) true ii) the discount rate is greater than the growth rate; and iii) the cashflows are positive and equal at year 1. G. (true/false) The payback rule usually takes into account all future cashflows. G) false H. What is the present value of receiving $17 every year, starting in one year, forever if the correct, risk-adjusted discount rate is 5% per year ? H) $340 I. (true/false) We should include sunk costs in an NPV calculation if the cost are associated with the project in question. I) false J. (true/false) When evaluating a potential project with the NPV rule, managers must know the exact value of future cashflows. Any J) false guessing or estimation invalidates the NPV calculation. your name:
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This note was uploaded on 12/06/2011 for the course UGBA 103 taught by Professor Berk during the Fall '07 term at University of California, Berkeley.

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UGBA103-samplemidterm1answers - your name: your section -...

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